(1) Subject to postponement in the event of a Market Disruption
Event or for non-Index Business Days. See “Postponement of Quarterly Observation End-Dates and Coupon Payment Dates (including
the Call Dates and the Maturity Date)” under “Additional Terms of the Securities” below.
(2) If, due to a Market Disruption Event or otherwise, any Quarterly
Observation End-Date is postponed so that it falls less than two Business Days prior to the scheduled Coupon Payment Date / Call
Date, the Coupon Payment Date / Call Date will be postponed to the second Business Day following that Quarterly Observation End-Date
as postponed, provided that the Coupon Payment Date with respect to the Final Valuation Date will be the Maturity Date.
No additional coupon will accrue on an account of any such postponement.
An investment in the Securities involves significant risks. Some
of the risks that apply to the Securities are summarized here, but we urge you to also read the “Risk Factors” section
of the accompanying prospectus. You should also consult your investment, legal, tax, accounting and other advisers in connection
with your investment in the Securities.
On the other hand, MSFL will be
less likely to exercise its call right when the Index Closing Value of any Underlying is below its Coupon Barrier Level and/or
when the Final Underlying Value of any Underlying is expected to be below its Downside Threshold, such that you will receive no
Contingent Coupons and/or that you will suffer a significant loss on your initial investment in the Securities at maturity.
Therefore, if MSFL does not exercise
its call right, it is more likely that you will receive few or no Contingent Coupons and suffer a significant loss at maturity.
Some or all of these factors will
influence the terms of the Securities at the time of issuance and the price that you will receive if you sell your Securities prior
to maturity, as the Securities are comprised of both a debt component and a performance-based component linked to the Underlyings,
and these are the types of factors that also generally affect the values of debt securities and derivatives linked to the Underlyings.
The value of each of the Underlyings may be, and each has recently been, extremely volatile, and we can give you no assurance that
the volatility will lessen. See “Historical Information” below. You may receive less, and possibly significantly less,
than the Principal Amount per Security if you try to sell your Securities prior to maturity.
Assuming no change in market conditions
or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the Securities
in secondary market transactions will likely be significantly lower than the Issue Price, because secondary market prices will
exclude the issuing, selling, structuring and hedging-related costs that are included in the Issue Price and borne by you and because
the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge
in a secondary market transaction of this type as well as other factors.
The inclusion of the costs of issuing,
selling, structuring and hedging the Securities in the Issue Price and the lower rate we are willing to pay as issuer make the
economic terms of the Securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the Securities are not fully deducted upon issuance, for a period of up to 5 months
following the Settlement Date, to the extent that MS & Co. may buy or sell the Securities in the secondary market, absent changes
in market conditions, including those related to the Underlyings, and to our secondary market credit spreads, it would do so based
on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account
statements.
Please read the discussion under “What Are the
Tax Consequences of the Securities” in this pricing supplement concerning the U.S. federal income tax consequences of an
investment in the Securities. We intend to treat a Security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the Securities, could result in adverse
tax consequences to holders of the Securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a
ruling from the Internal Revenue Service (the “IRS”)
regarding the tax treatment of the Securities, and the IRS or a court may not agree with the tax treatment described herein. If
the IRS were successful in asserting an alternative treatment for the Securities, the timing and character of income or loss on
the Securities might differ significantly from the tax treatment described herein. For example, under one possible treatment, the
IRS could seek to recharacterize the Securities as debt instruments. In that event, U.S. Holders (as defined below) would be required
to accrue into income original issue discount on the Securities every year at a “comparable yield” determined at the
time of issuance (as adjusted based on the difference, if any, between the actual and the projected amount of any contingent payments
on the Securities) and recognize all income and gain in respect of the Securities as ordinary income. The risk that financial instruments
providing for buffers, triggers or similar downside protection features, such as the Securities, would be recharacterized as debt
is greater than the risk of recharacterization for comparable financial instruments that do not have such features.
In 2007, the U.S. Treasury Department and the IRS
released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar
instruments. While it is not clear whether the Securities would be viewed as similar to the prepaid forward contracts described
in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these issues could
materially and adversely affect the tax consequences of an investment in the Securities, possibly with retroactive effect. The
notice focuses on a number of issues, the most relevant of which for holders of the Securities are the character and timing of
income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding tax. Both
U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment
in the Securities, including possible alternative treatments, the issues presented by this notice and any tax consequences arising
under the laws of any state, local or non-U.S. taxing jurisdiction.
The examples below illustrate the payment upon a call or at maturity
for a $10 Security on a hypothetical offering of the Securities, with the following assumptions (the actual terms for the Securities
were determined on the Trade Date and are specified on the cover hereof; amounts may have been rounded for ease of reference):
Example 1 — Securities are Called on the Second Coupon
Payment Date
Date
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Lowest Index Closing Value during the relevant Quarterly Observation Period
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Payment (per Security)
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SPX Index
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RTY Index
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SX5E Index
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First Quarterly Observation Period
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2,800 (at or above Coupon Barrier)
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1,600 (at or above Coupon Barrier)
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3,700 (at or above Coupon Barrier)
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$0.25 (Contingent Coupon — Not Called)
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Second Quarterly Observation Period
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3,000 (at or above Coupon Barrier)
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1,800 (at or above Coupon Barrier)
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3,700 (at or above Coupon Barrier)
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$10.25 (Settlement Amount)
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Total Payment:
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$10.50 (5.00% return)
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Each of the SPX Index, the RTY Index and the SX5E Index closes
above its respective Coupon Barrier on each Index Business Day during the first Quarterly Observation Period, and therefore
a Contingent Coupon is paid on the related Coupon Payment Date. MSFL calls the Securities on the second Coupon Payment Date. On
the Call Date, MSFL will pay you a total of $10.25 per Security, reflecting your principal amount plus the applicable Contingent
Coupon otherwise due with respect to the relevant Quarterly Observation Period. When added to the Contingent Coupon payment of
$0.25 received in respect of the prior Quarterly Observation Period, MSFL will have paid you a total of $10.50 per Security for
a 5.00% total return over the 6-month term of the Securities. No further amount will be owed to you under the Securities, and you
do not participate in the appreciation of the Underlyings.
Example 2 — Securities are NOT Called and the Final
Underlying Value of each of the SPX Index, the RTY Index and the SX5E Index is at or above its respective Downside Threshold
Date
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Lowest Index Closing Value during the relevant Quarterly Observation Period
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Payment (per Security)
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SPX Index
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RTY Index
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SX5E Index
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First Quarterly Observation Period
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1,900 (at or above Coupon Barrier)
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1,200 (at or above Coupon Barrier)
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3,200 (at or above Coupon Barrier)
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$0.25 (Contingent Coupon — Not Called)
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Second Quarterly Observation Period
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1,950 (at or above Coupon Barrier)
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1,120 (at or above Coupon Barrier)
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2,800 (at or above Coupon Barrier)
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$0.25 (Contingent Coupon — Not Called)
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Third Quarterly Observation Period
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2,000 (at or above Coupon Barrier)
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1,080 (at or above Coupon Barrier)
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1,900 (below Coupon Barrier)
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$0 (Not Called)
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Fourth Quarterly Observation Period
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1,905 (at or above Coupon Barrier)
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1,100 (at or above Coupon Barrier)
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1,900 (below Coupon Barrier)
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$0 (Not Called)
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Fifth to Eleventh Quarterly Observation Periods
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Various (all at or above Coupon Barrier)
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Various (at or above Coupon Barrier)
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Various (all below Coupon Barrier)
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$0 (Not Called)
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Final Quarterly Observation Period
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2,250 (at or above Coupon Barrier and Downside Threshold)
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1,100 (at or above Coupon Barrier and Downside Threshold)
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2,700 (at or above Coupon Barrier and Downside Threshold)
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Final Index Value
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$10.25 (Settlement Amount)
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2,250
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1,100
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2,700
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Total Payment:
$10.75 (7.50% return)
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In this example, MSFL does not call the Securities based on the
output of our risk neutral valuation model prior to maturity. Each of the SPX Index, the RTY Index and the SX5E Index closes above
its respective Coupon Barrier on each Index Business Day during the first two Quarterly Observation Periods, and therefore
a Contingent Coupon is paid on each related Coupon Payment Date. During each of the third to eleventh Quarterly Observation Periods,
the SPX Index and the RTY Index close at or above their respective Coupon Barriers on every Index Business Day, but the
SX5E Index closes below its Coupon Barrier on at least one Index Business Day during each such Quarterly Observation Period. Therefore,
no Contingent Coupon is paid on any related Coupon Payment Date. On the Final Valuation Date, each of the SPX Index, the RTY Index
and the SX5E Index closes above its Downside Threshold, and each of the SPX Index, the RTY Index and the SX5E Index closes above
its Coupon Barrier on every Index Business Day during the final Quarterly Observation Period. Therefore, at maturity, MSFL
will pay you a total of $10.25 per Security, reflecting your principal amount plus the applicable Contingent Coupon. When
added to the Contingent Coupon payments of $0.50 received in respect of prior Quarterly Observation Periods, MSFL will have paid
you a total of approximately $10.75 per Security for an 7.50% total return on the Securities over 3 years. You do not participate
in any appreciation of the Underlyings.
Example 3 — Securities are NOT Called and the Final
Underlying Value of at least one of the Underlyings is below the Downside Threshold
Date
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Lowest Index Closing Value during the relevant Quarterly Observation Period
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SPX Index
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RTY Index
|
SX5E Index
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Payment (per Security)
|
First Quarterly Observation Period
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2,400 (at or above Coupon Barrier)
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1,100 (at or above Coupon Barrier)
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3,300 (at or above Coupon Barrier)
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$0.25 (Contingent Coupon — Not Called)
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Second Quarterly Observation Period
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2,300 (at or above Coupon Barrier)
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1,100 (at or above Coupon Barrier)
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3,000 (at or above Coupon Barrier)
|
$0.25 (Contingent Coupon — Not Called)
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Third Quarterly Observation Period
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2,250 (at or above Coupon Barrier)
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950 (below Coupon Barrier)
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1,900 (below Coupon Barrier)
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$0 (Not Called)
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Fourth Quarterly Observation Period
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2,350 (at or above Coupon Barrier)
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925 (below Coupon Barrier)
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1,900 (below Coupon Barrier)
|
$0 (Not Called)
|
Fifth to Eleventh Quarterly Observation Period
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Various (all below Coupon Barrier)
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Various (all below Coupon Barrier)
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Various (all below Coupon Barrier)
|
$0 (Not Called)
|
Final Quarterly Observation Period
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2,200 (at or above Coupon Barrier
and Downside Threshold)
2,200
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700 (below Coupon Barrier and Downside
Threshold)
Final Index Value
700
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1,240 (below Coupon Barrier and Downside
Threshold)
1,240
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$10 + [$10 × Index Return of the Least
Performing Underlying] =
$10 + [$10 × -60%] =
$10 - $6 =
$4 (Payment at Maturity)
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Total Payment:
$4.50 (-55.00% return)
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In this example, MSFL does not call the Securities based on the
output of our risk neutral valuation model prior to maturity. Each of the SPX Index, the RTY Index and the SX5E Index closes above
its respective Coupon Barrier on each Index Business Day during the first two Quarterly Observation Periods, and therefore
a Contingent Coupon is paid on each related Coupon Payment Date. During each of the third and fourth Quarterly Observation Periods,
the SPX Index closes at or above its Coupon Barrier on every Index Business Day but the RTY Index and the SX5E Index close below
their respective Coupon Barriers on at least one Index Business Day during each such Quarterly Observation Period. Therefore, no
Contingent Coupon is paid on either related Coupon Payment Date. During each of the fifth to the eleventh Quarterly Observation
Periods, each of the SPX Index, the RTY Index and the SX5E Index closes below its respective Coupon Barrier on at least one Index
Business Day during each such Quarterly Observation Period and thus no Contingent Coupon is paid on any related Coupon Payment
Date. On the Final Valuation Date, the SPX Index closes above its Coupon Barrier and Downside Threshold, but the RTY Index and
the SX5E Index close below their respective Coupon Barriers and Downside Thresholds. Therefore, at maturity, investors are exposed
to the downside performance of the Least Performing Underlying (which, in this example, is the SX5E Index), and MSFL will pay you
$4 per Security, which reflects the percentage decrease of the Least Performing Underlying from the Trade Date to the Final Valuation
Date. When added to the Contingent Coupon payments of $0.50 received in respect of prior Quarterly Observation Periods, MSFL will
have paid you $4.50 per Security for a loss on the Securities of 55.00%.
The Securities differ from ordinary debt securities in that,
among other features, MSFL is not necessarily obligated to repay the full amount of your initial investment. If the Securities
are not called on any Coupon Payment Date, you may lose a significant portion or all of your initial investment. Specifically,
if the Securities are not called and the Final Underlying Value of any Underlying is less than its Downside Threshold, you will
lose 1% (or a fraction thereof) of your principal amount for each 1% (or a fraction thereof) that the Index Return of the Least
Performing Underlying is less than zero. Any payment on the Securities, including any Contingent Coupon, payment upon a call or
the Payment at Maturity, is dependent on our ability to satisfy its obligations when they come due. If we are is unable to meet
our obligations, you may not receive any amounts due to you under the Securities.
The Issuer will not pay a quarterly Contingent Coupon if the
Index Closing Value for any of the Underlyings is below its respective Coupon Barrier on any Index Business Day during the relevant
Quarterly Observation Period. The Issuer will have the right to call the Securities based on the output of our risk neutral valuation
model on any quarterly Call Date, beginning January 26, 2021. You will lose a significant portion or all of your principal amount
at maturity if the Securities are not called and the Final Underlying Value of any of the Underlyings is below its Downside Threshold.
What
Are the Tax Consequences of the Securities?
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Prospective investors should note that the
discussion under the section called “United States Federal Taxation” in the accompanying prospectus supplement does
not apply to the Securities issued under this pricing supplement and is superseded by the following discussion.
The following is a general discussion of the
material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the Securities.
This discussion applies only to investors in the Securities who:
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purchase the Securities in the original offering; and
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hold the Securities as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
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This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
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certain financial institutions;
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certain dealers and traders in securities or commodities;
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investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
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U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
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partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
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If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the Securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the Securities to you.
As the law applicable to the U.S. federal income
taxation of instruments such as the Securities is technical and complex, the discussion below necessarily represents only a general
summary. The effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences
or consequences resulting from the Medicare tax on investment income. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the Securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial or
administrative authorities that directly address the treatment of the Securities or instruments that are similar to the Securities
for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will agree with the tax treatment described
herein. We intend to treat a Security for U.S. federal income tax purposes as a single financial contract that provides for a coupon
that will be treated as gross income to you at the time received or accrued in accordance with your regular method of tax accounting.
In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the Securities is reasonable under current law;
however, our counsel has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to
be upheld, and that alternative treatments are possible.
You should consult your tax adviser regarding
all aspects of the U.S. federal tax consequences of an investment in the Securities (including possible alternative treatments
of the Securities). Unless otherwise stated, the following discussion is based on the treatment of each Security as described in
the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a Security that is, for U.S. federal
income tax purposes:
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a citizen or individual resident of the United States;
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a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States, any state thereof or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
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Tax Treatment of the Securities
Assuming the treatment of the Securities
as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis. A U.S. Holder’s
tax basis in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Tax Treatment of Coupon Payments.
Any coupon payment on the Securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in
accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the
Securities. Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the Securities
sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include
sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should
be long-term capital gain or loss if the U.S. Holder has held the Securities for more than one year at the time of the sale, exchange
or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in
conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the Securities, could
result in adverse tax consequences to holders of the Securities because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of an Investment in
the Securities
Due to the absence of authorities that directly address the proper
tax treatment of the Securities, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment
described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the Securities
under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”). If the
IRS were successful in asserting that the Contingent Debt Regulations applied to the Securities, the timing and character of income
thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original issue
discount on the Securities every year at a “comparable yield” determined at the time of their issuance, adjusted upward
or downward to reflect the difference, if any, between the actual and the projected amount of any contingent payments on the Securities.
Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the Securities would
be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S. Holder’s
prior accruals of original issue discount and as capital loss thereafter. The risk that financial instruments providing for buffers,
triggers or similar downside protection features, such as the Securities, would be recharacterized as debt is greater than the
risk of recharacterization for comparable financial instruments that do not have such features.
Other alternative federal income tax treatments of the Securities
are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the
Securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether to require holders
of “prepaid forward contracts” and similar instruments to accrue income over the term of their investment. It also
asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange–traded
status of the instruments and the nature of the underlying property to which the instruments are linked; whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates.
While it is not clear whether instruments such as the Securities would be viewed as similar to the prepaid forward contracts described
in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the Securities, possibly with retroactive effect. U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities, including possible
alternative treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the Securities
and the payment of proceeds from a sale, exchange or other disposition of the Securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded,
or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely
furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments on the Securities
and the payment of proceeds from a sale, exchange or other disposition of the Securities, unless the U.S. Holder provides proof
of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are a Non-U.S. Holder.
As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Security that is for U.S. federal income tax
purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
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The term “Non-U.S. Holder” does
not include any of the following holders:
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a holder who is an individual present in the United States for 183
days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income
tax purposes;
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certain former citizens or residents of the United States; or
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a holder for whom income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United States.
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Such holders should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the Securities.
Although significant aspects of the tax treatment of each Security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any
additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding
tax, a Non-U.S. Holder of the Securities must comply with certification requirements to establish that it is not a U.S. person
and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S. Holder, you should consult
your tax adviser regarding the tax treatment of the Securities, including the possibility of obtaining a refund of any withholding
tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code and Treasury regulations promulgated
thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend
equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices
that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m) generally
applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as determined
based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant to an IRS
notice, Section 871(m) will not apply to securities issued before January 1, 2023 that do not have a delta of one with respect
to any Underlying Security. Based on our determination that the Securities do not have a delta of one with respect to any Underlying
Security, our counsel is of the opinion that the Securities should not be Specified Securities and, therefore, should not be subject
to Section 871(m).
Our determination is not binding on the IRS, and the IRS may
disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including
whether you enter into other transactions with respect to an Underlying Security. If Section 871(m) withholding is required, we
will not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser
regarding the potential application of Section 871(m) to the Securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the Securities may be treated as U.S.-situs property subject to U.S. federal estate tax.
Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers
regarding the U.S. federal estate tax consequences of an investment in the Securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the Securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S.
person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed
or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable) applies to payments
of U.S.-source FDAP income and to payments of gross proceeds of the disposition (including upon retirement) of certain financial
instruments treated as providing for U.S.-source interest or dividends. Under recently proposed regulations (the preamble to which
specifies that taxpayers are permitted to rely on them pending finalization), no withholding will apply on payments of gross proceeds
(other than amounts treated as FDAP income). While the treatment of the Securities is unclear, you should assume that any coupon
payment with respect to the Securities will be subject to the FATCA rules. If withholding applies to the Securities, we will not
be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their
tax advisers regarding the potential application of FATCA to the Securities.
The discussion in the preceding paragraphs under “What
Are the Tax Consequences of the Securities,” insofar as it purports to describe provisions of U.S. federal income tax laws
or legal conclusions with respect thereto, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material
U.S. federal tax consequences of an investment in the Securities.
The S&P 500® Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies selected
to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500® Index is based
on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time
as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941 through
1943. For additional information about the S&P 500® Index, see the information set forth under “S&P
500® Index” in the accompanying index supplement.
“Standard & Poor’s®,” “S&P®,”
“S&P 500®,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. For more information, see “S&P 500® Index” in
the accompanying index supplement.
The following table sets forth the published high and low closing
values, as well as the end-of-quarter closing values, of the S&P 500® Index for each quarter in the period from
January 1, 2015 through October 21, 2020. The closing value of the S&P 500® Index on October 21, 2020 was 3,435.56.
We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical
closing values of the S&P 500® Index should not be taken as an indication of future performance, and no assurance
can be given as to the level of the S&P 500® Index on any Index Business Day during a Quarterly Observation
Period, including the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2015
|
3/31/2015
|
2,117.39
|
1,992.67
|
2,067.89
|
4/1/2015
|
6/30/2015
|
2,130.82
|
2,057.64
|
2,063.11
|
7/1/2015
|
9/30/2015
|
2,128.28
|
1,867.61
|
1,920.03
|
10/1/2015
|
12/31/2015
|
2,109.79
|
1,923.82
|
2,043.94
|
1/1/2016
|
3/31/2016
|
2,063.95
|
1,829.08
|
2,059.74
|
4/1/2016
|
6/30/2016
|
2,119.12
|
2,000.54
|
2,098.86
|
7/1/2016
|
9/30/2016
|
2,190.15
|
2,088.55
|
2,168.27
|
10/1/2016
|
12/31/2016
|
2,271.72
|
2,085.18
|
2,238.83
|
1/1/2017
|
3/31/2017
|
2,395.96
|
2,257.83
|
2,362.72
|
4/1/2017
|
6/30/2017
|
2,453.46
|
2,328.95
|
2,423.41
|
7/1/2017
|
9/30/2017
|
2,519.36
|
2,409.75
|
2,519.36
|
10/1/2017
|
12/31/2017
|
2,690.16
|
2,529.12
|
2,673.61
|
1/1/2018
|
3/31/2018
|
2,872.87
|
2,581.00
|
2,640.87
|
4/1/2018
|
6/30/2018
|
2,786.85
|
2,581.88
|
2,718.37
|
7/1/2018
|
9/30/2018
|
2,930.75
|
2,713.22
|
2,913.98
|
10/1/2018
|
12/31/2018
|
2,925.51
|
2,351.10
|
2,506.85
|
1/1/2019
|
3/31/2019
|
2,854.88
|
2,447.89
|
2,834.40
|
4/1/2019
|
6/30/2019
|
2,954.18
|
2,744.45
|
2,941.76
|
7/1/2019
|
9/30/2019
|
3,025.86
|
2,840.60
|
2,976.74
|
10/1/2019
|
12/31/2019
|
3,240.02
|
2,887.61
|
3,230.78
|
1/1/2020
|
3/31/2020
|
3,386.15
|
2,237.40
|
2,584.59
|
4/1/2020
|
6/30/2020
|
3,232.39
|
2,470.50
|
3,100.29
|
7/1/2020
|
9/30/2020
|
3,580.84
|
3,115.86
|
3,363.00
|
10/1/2020
|
10/21/2020*
|
3,534.22
|
3,348.44
|
3,435.56
|
* Available information
for the indicated period includes data for less than the entire calendar quarter and accordingly, the “Quarterly High,”
“Quarterly Low” and “Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the
S&P 500® Index from January 1, 2008 through October 21, 2020, based on information from Bloomberg.
*
The dotted line indicates the Coupon Barrier of 2,233.11, which is approximately 65% of the Initial Underlying Value, and
the solid line indicates the Downside Threshold of 2,061.34, which is approximately 60% of the Initial Underlying Value.
Past performance is not indicative of future results.
The Russell 2000® Index is an index calculated,
published and disseminated by FTSE Russell, and measures the composite price performance of stocks of 2,000 companies incorporated
in the U.S. and its territories. All 2,000 stocks are traded on a major U.S. exchange and are the 2,000 smallest securities that
form the Russell 3000® Index. The Russell 3000® Index is composed of the 3,000 largest U.S. companies
as determined by market capitalization and represents approximately 98% of the U.S. equity market. The Russell 2000®
Index consists of the smallest 2,000 companies included in the Russell 3000® Index and represents a small portion
of the total market capitalization of the Russell 3000® Index. The Russell 2000® Index is designed
to track the performance of the small-capitalization segment of the U.S. equity market. For additional information about the Russell
2000® Index, see the information set forth under “Russell 2000® Index” in the accompanying
index supplement.
The “Russell 2000® Index” is a trademark
of FTSE Russell. For more information, see “Russell 2000® Index” in the accompanying index supplement.
The following table sets forth the published high and low closing
values, as well as the end-of-quarter closing values, of the Russell 2000® Index for each quarter in the period
from January 1, 2015 through October 21, 2020. The closing value of the Russell 2000® Index on October 21, 2020
was 1,603.776. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
The historical closing values of the Russell 2000® Index should not be taken as an indication of future performance,
and no assurance can be given as to the level of the Russell 2000® Index on any Index Business Day during a Quarterly
Observation Period, including the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2015
|
3/31/2015
|
1,266.373
|
1,154.709
|
1,252.772
|
4/1/2015
|
6/30/2015
|
1,295.799
|
1,215.417
|
1,253.947
|
7/1/2015
|
9/30/2015
|
1,273.328
|
1,083.907
|
1,100.688
|
10/1/2015
|
12/31/2015
|
1,204.159
|
1,097.552
|
1,135.889
|
1/1/2016
|
3/31/2016
|
1,114.028
|
953.715
|
1,114.028
|
4/1/2016
|
6/30/2016
|
1,188.954
|
1,089.646
|
1,151.923
|
7/1/2016
|
9/30/2016
|
1,263.438
|
1,139.453
|
1,251.646
|
10/1/2016
|
12/31/2016
|
1,388.073
|
1,156.885
|
1,357.130
|
1/1/2017
|
3/31/2017
|
1,413.635
|
1,345.598
|
1,385.920
|
4/1/2017
|
6/30/2017
|
1,425.985
|
1,345.244
|
1,415.359
|
7/1/2017
|
9/30/2017
|
1,490.861
|
1,356.905
|
1,490.861
|
10/1/2017
|
12/31/2017
|
1,548.926
|
1,464.095
|
1,535.511
|
1/1/2018
|
3/31/2018
|
1,610.706
|
1,463.793
|
1,529.427
|
4/1/2018
|
6/30/2018
|
1,706.985
|
1,492.531
|
1,643.069
|
7/1/2018
|
9/30/2018
|
1,740.753
|
1,653.132
|
1,696.571
|
10/1/2018
|
12/31/2018
|
1,672.992
|
1,266.925
|
1,348.559
|
1/1/2019
|
3/31/2019
|
1,590.062
|
1,330.831
|
1,539.739
|
4/1/2019
|
6/30/2019
|
1,614.976
|
1,465.487
|
1,566.572
|
7/1/2019
|
9/30/2019
|
1,585.599
|
1,456.039
|
1,523.373
|
10/1/2019
|
12/31/2019
|
1,678.010
|
1,472.598
|
1,668.469
|
1/1/2020
|
3/31/2020
|
1,705.215
|
991.160
|
1,153.103
|
4/1/2020
|
6/30/2020
|
1,536.895
|
1,052.053
|
1,441.365
|
7/1/2020
|
9/30/2020
|
1,592.287
|
1,398.920
|
1,507.692
|
10/1/2020
|
10/21/2020*
|
1,649.053
|
1,531.202
|
1,603.776
|
* Available information for the indicated period includes data
for less than the entire calendar quarter, and, accordingly, the “Quarterly High,” “Quarterly Low” and
“Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the
Russell 2000® Index from January 1, 2008 through October 21, 2020, based on information from Bloomberg.
*
The dotted line indicates the Coupon Barrier of 1,042.454, which is approximately 65% of the Initial Underlying Value, and
the solid line indicates the Downside Threshold of 962.266, which is approximately 60% of the Initial Underlying Value.
Past performance is not indicative
of future results.
The EURO STOXX 50® Index was created by STOXX
Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50® Index began
on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50® Index is
composed of 50 component stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes stocks selected
from the Eurozone. The component stocks have a high degree of liquidity and represent the largest companies across all market sectors.
For additional information about the EURO STOXX 50® Index, see the information set forth under “EURO STOXX
50® Index” in the accompanying index supplement.
“EURO STOXX 50®” and “STOXX®”
are registered trademarks of STOXX Limited. For more information, see “EURO STOXX 50® Index” in the
accompanying index supplement.
The following table sets forth the published high and low closing
values, as well as the end-of-quarter closing values, of the EURO STOXX 50® Index for each quarter in the period
from January 1, 2015 through October 21, 2020. The closing value of the EURO STOXX 50® Index on October 21, 2020
was 3,180.70. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
The historical closing values of the EURO STOXX 50® Index should not be taken as an indication of future performance,
and no assurance can be given as to the level of the EURO STOXX 50® Index on any Index Business Day during a Quarterly
Observation Period, including the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2015
|
3/31/2015
|
3,731.35
|
3,007.91
|
3,697.38
|
4/1/2015
|
6/30/2015
|
3,828.78
|
3,424.30
|
3,424.30
|
7/1/2015
|
9/30/2015
|
3,686.58
|
3,019.34
|
3,100.67
|
10/1/2015
|
12/31/2015
|
3,506.45
|
3,069.05
|
3,267.52
|
1/1/2016
|
3/31/2016
|
3,178.01
|
2,680.35
|
3,004.93
|
4/1/2016
|
6/30/2016
|
3,151.69
|
2,697.44
|
2,864.74
|
7/1/2016
|
9/30/2016
|
3,091.66
|
2,761.37
|
3,002.24
|
10/1/2016
|
12/31/2016
|
3,290.52
|
2,954.53
|
3,290.52
|
1/1/2017
|
3/31/2017
|
3,500.93
|
3,230.68
|
3,500.93
|
4/1/2017
|
6/30/2017
|
3,658.79
|
3,409.78
|
3,441.88
|
7/1/2017
|
9/30/2017
|
3,594.85
|
3,388.22
|
3,594.85
|
10/1/2017
|
12/31/2017
|
3,697.40
|
3,503.96
|
3,503.96
|
1/1/2018
|
3/31/2018
|
3,672.29
|
3,278.72
|
3,361.50
|
4/1/2018
|
6/30/2018
|
3,592.18
|
3,340.35
|
3,395.60
|
7/1/2018
|
9/30/2018
|
3,527.18
|
3,293.36
|
3,399.20
|
10/1/2018
|
12/31/2018
|
3,414.16
|
2,937.36
|
3,001.42
|
1/1/2019
|
3/31/2019
|
3,409.00
|
2,954.66
|
3,351.71
|
4/1/2019
|
6/30/2019
|
3,514.62
|
3,280.43
|
3,473.69
|
7/1/2019
|
9/30/2019
|
3,571.39
|
3,282.78
|
3,569.45
|
10/1/2019
|
12/31/2019
|
3,782.27
|
3,413.31
|
3,745.15
|
1/1/2020
|
3/31/2020
|
3,865.18
|
2,385.82
|
2,786.90
|
4/1/2020
|
6/30/2020
|
3,384.29
|
2,662.99
|
3,234.07
|
7/1/2020
|
9/30/2020
|
3,405.35
|
3,137.06
|
3,193.61
|
10/1/2020
|
10/21/2020*
|
3,298.12
|
3,180.70
|
3,180.70
|
|
*
|
Available information for the indicated period includes data for less than the entire calendar quarter and accordingly, the
“Quarterly High,” “Quarterly Low” and “Quarterly Close” data indicated are for this shortened
period only.
|
The graph below illustrates the performance of the
EURO STOXX 50® Index from January 1, 2008 through October 21, 2020, based on information from Bloomberg.
*
The dotted line indicates the Coupon Barrier of 2,067.46, which is approximately 65% of the Initial Underlying Value, and
the solid line indicates the Downside Threshold of 1,908.42, which is 60% of the Initial Underlying Value.
Past performance is not indicative
of future results.
Correlation of the Underlyings
|
The graph below illustrates the daily performance of the Russell
2000® Index, the S&P 500® Index and the EURO STOXX 50® Index from January 1, 2008
through October 19, 2020. For comparison purposes, each Underlying has been “normalized” to have a closing value of
100 on January 1, 2008 by dividing the closing value of that Underlying on each Index Business Day by the closing value of that
Underlying on January 1, 2008 and multiplying by 100. We obtained the closing values used to determine the normalized closing values
set forth below from Bloomberg, without independent verification.
A closer relationship between the daily
returns of two or more underlying assets over a given period indicates that such underlying assets have been more positively correlated.
Lower (or more-negative) correlation among two or more underlying assets over a given period may indicate that it is less likely
that those underlying assets will subsequently move in the same direction. Therefore, lower correlation among the Underlyings
may indicate a greater potential for one of the Underlyings to close below its respective Coupon Barrier on any Index Business
Day during an applicable Quarterly Observation Period because there may be a greater likelihood that at least one of the Underlyings
will decrease in value significantly. However, even if the Underlyings have a higher positive correlation, one or more of the Underlyings
may close below the respective Coupon Barrier(s) on any Index Business Day during the applicable Quarterly Observation Period or
below the Downside Threshold on the Final Valuation Date, as applicable, as the Underlyings may all decrease in value. Moreover,
the actual correlation among the Underlyings may differ, perhaps significantly, from their historical correlation. A higher
Contingent Coupon Rate is generally associated with lower correlation among the Underlyings, which may indicate a greater potential
for missed Contingent Coupons and/or a significant loss on your investment at maturity. See “Key Risks — Because the
Securities are linked to the performance of the least performing among the SPX Index, the RTY Index and the SX5E Index, you are
exposed to greater risk of receiving no Contingent Coupon payments or sustaining a significant loss on your investment than if
the Securities were linked to just one of the Underlyings” and “— A higher Contingent Coupon Rate and/or lower
Coupon Barriers and Downside Thresholds may reflect greater expected volatility of the Underlyings, and greater expected volatility
generally indicates an increased risk of declines in the levels of the Underlyings and, potentially, a significant loss at maturity.”
herein.
Past performance and correlation of the Underlyings are not indicative
of the future performance or correlation of the Underlyings.
Additional Terms of the Securities
|
If the terms discussed in this pricing supplement differ from
those discussed in the prospectus supplement, index supplement or prospectus, the terms contained in this pricing supplement will
control.
Some Definitions
We have defined some of the terms that we use frequently in this
pricing supplement below:
|
t
|
“Index Closing Value” on any Index Business
Day means (i) with respect to the SPX Index or the SX5E Index, the closing value of such Underlying, or any relevant Successor
Index (as defined under “—Discontinuance of an Underlying; Alteration of Method of Calculation” below) published
at the regular weekday close of trading on that Index Business Day by the relevant Index Publisher, and (ii) with respect to the
RTY Index, the closing value of such Underlying or any Successor Index reported by Bloomberg Financial Services, or any successor
reporting service the Calculation Agent may select, on that Index Business Day. In certain circumstances, the Index Closing Value
will be based on the alternate calculation of such Underlying as described under “—Discontinuance of an Underlying;
Alteration of Method of Calculation.”
|
The closing value of the RTY Index
reported by Bloomberg Financial Services may be lower or higher than the official closing value of the Underlying published by
the Index Publisher.
|
t
|
“Index Publisher” means, with respect
to the SPX Index, S&P Dow Jones Indices LLC or any successor thereto; with respect to the RTY Index, FTSE Russell or any successor
thereto; and with respect to the SX5E Index, STOXX Limited or any successor thereto.
|
|
t
|
“Index Business Day” means a day, for
any Underlying, as determined by the Calculation Agent, on which trading is generally conducted on each of the Relevant Exchange(s)
for such Underlying, other than a day on which trading on such exchange(s) is scheduled to close prior to the time of the posting
of its regular final weekday closing price.
|
|
t
|
“Market Disruption Event” means, with
respect to any Underlying:
|
(i) the
occurrence or existence of any of:
(a) a suspension, absence or material
limitation of trading of securities then constituting 20 percent or more of the value of such Underlying (or any relevant Successor
Index (as defined below under “—Discontinuance of an Underlying; Alteration of Method of Calculation”)) on the
Relevant Exchange for such securities for more than two hours of trading or during the one-half hour period preceding the close
of the principal trading session on such Relevant Exchange, or
(b) a breakdown or failure in the
price and trade reporting systems of any Relevant Exchange as a result of which the reported trading prices for securities then
constituting 20 percent or more of the value of such Underlying (or a Successor Index) during the last one-half hour preceding
the close of the principal trading session on such Relevant Exchange are materially inaccurate, or
(c) the suspension, material limitation
or absence of trading on any major U.S. securities market for trading in futures or options contracts or exchange-traded funds
related to such Underlying (or a Successor Index) for more than two hours of trading or during the one-half hour period preceding
the close of the principal trading session on such market,
in each case as determined by the
Calculation Agent in its sole discretion; and
(ii) a
determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered
with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with
respect to the Securities.
For the purpose of determining whether a Market Disruption
Event exists at any time, if trading in a security included in such Underlying is materially suspended or materially limited at
that time, then the relevant percentage contribution of that security to the value of such Underlying shall be based on a comparison
of (x) the portion of the value of such Underlying attributable to that security relative to (y) the overall value of such Underlying,
in each case immediately before that suspension or limitation.
For the purpose of determining whether
a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a Market
Disruption Event if it results from an announced change in the regular business hours of the Relevant Exchange or market, (2) a
decision to permanently discontinue trading in the relevant futures or options contract or exchange-traded fund will not constitute
a Market Disruption Event, (3) a suspension of trading in futures or options contracts or exchange-traded funds on such Underlying
by the primary securities market trading in such contracts or funds by reason of (a) a price change exceeding limits set by such
securities exchange or market, (b) an imbalance of orders relating to such contracts or funds, or (c) a disparity in bid and ask
quotes relating to such contracts or funds will constitute a suspension, absence or material limitation of trading in futures or
options contracts or exchange-
traded funds related to the Index
and (4) a “suspension, absence or material limitation of trading” on any Relevant Exchange or on the primary market
on which futures or options contracts or exchange-traded funds related to such Underlying are traded will not include any time
when such securities market is itself closed for trading under ordinary circumstances.
|
t
|
“Relevant Exchange” means, with respect
to any Underlying, the primary exchange(s) or market(s) of trading for (i) any security then included in such Underlying, or any
relevant Successor Index, and (ii) any futures or options contracts related to such Underlying or to any security then included
in such Underlying.
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Postponement of Quarterly Observation End-Dates and Coupon
Payment Dates (including the Call Dates and the Maturity Date)
If any scheduled Quarterly Observation End-Date, including the
Final Valuation Date, is not an Index Business Day with respect to any Underlying, or if there is a Market Disruption Event on
such day with respect to any Underlying, the relevant Quarterly Observation End-Date solely with respect to that affected Underlying
shall be the next succeeding Index Business Day with respect to that Underlying on which there is no Market Disruption Event with
respect to that Underlying; provided that if a Market Disruption Event with respect to that Underlying has occurred on each
of the five Index Business Days with respect to that Underlying immediately succeeding the relevant scheduled Quarterly Observation
End-Date, then (i) such fifth succeeding Index Business Day shall be deemed to be the relevant Quarterly Observation End-Date with
respect to that affected Underlying, notwithstanding the occurrence of a Market Disruption Event with respect to that Underlying
on such day, and (ii) with respect to any such fifth Index Business Day on which a Market Disruption Event occurs with respect
to that Underlying, the Calculation Agent shall determine the Index Closing Value on such fifth Index Business Day in accordance
with the formula for and method of calculating that Underlying last in effect prior to the commencement of the Market Disruption
Event, using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited,
its good faith estimate of the closing price that would have prevailed but for such suspension or limitation) at the close of the
principal trading session of the Relevant Exchange on such Index Business Day of each security most recently constituting that
affected Underlying without any rebalancing or substitution of such securities following the commencement of the Market Disruption
Event.
If any scheduled Coupon Payment Date (including a scheduled Call
Date) is not a Business Day, that Contingent Coupon, if any, (or the Settlement Amount, if applicable), shall be paid on the next
succeeding business day; provided that the Contingent Coupon, if any, with respect to the Final Valuation Date shall be
paid on the Maturity Date; provided further that if, due to a Market Disruption Event or otherwise, any Quarterly Observation
End-Date with respect to any Underlying is postponed so that it falls less than two business days prior to the scheduled Coupon
Payment Date, Call Date or Maturity Date, as applicable, the Coupon Payment Date, Call Date or Maturity Date, as applicable, shall
be postponed to the second business day following the Quarterly Observation End-Date as postponed, by which date the Index Closing
Value of each Underlying has been determined. In any of these cases, no adjustment shall be made to any Contingent Coupon payment
made on that postponed date.
Alternate Exchange Calculation in case of an Event of Default
If an event of default with respect to the Securities shall have
occurred and be continuing, the amount declared due and payable upon any acceleration of the Securities (the “Acceleration
Amount”) will be an amount, determined by the Calculation Agent in its sole discretion, that is equal to the cost of having
a Qualified Financial Institution, of the kind and selected as described below, expressly assume all our payment and other obligations
with respect to the Securities as of that day and as if no default or acceleration had occurred, or to undertake other obligations
providing substantially equivalent economic value to you with respect to the Securities. That cost will equal:
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the lowest amount that a Qualified Financial Institution
would charge to effect this assumption or undertaking, plus
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the reasonable expenses, including reasonable attorneys’
fees, incurred by the holders of the Securities in preparing any documentation necessary for this assumption or undertaking.
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During the Default Quotation Period for the Securities, which
we describe below, the holders of the Securities and/or we may request a Qualified Financial Institution to provide a quotation
of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the
other party in writing of the quotation. The amount referred to in the first bullet point above will equal the lowest—or,
if there is only one, the only—quotation obtained, and as to which notice is so given, during the Default Quotation Period.
With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds,
to the assumption or undertaking by the Qualified Financial Institution providing the quotation and notify the other party in writing
of those grounds within two business days after the last day of the Default Quotation Period, in which case that quotation will
be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing, if a voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to Morgan Stanley or MSFL, then depending
on applicable bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration Amount.
If the maturity of the Securities is accelerated because of an
event of default as described above, we shall, or shall cause the Calculation Agent to, provide written notice to the Trustee at
its New York office, on which notice the Trustee may conclusively
rely, and to the Depositary of the Acceleration Amount and the
aggregate cash amount due, if any, with respect to the Securities as promptly as possible and in no event later than two business
days after the date of such acceleration.
Default Quotation Period
The Default Quotation Period is the period beginning on the day
the Acceleration Amount first becomes due and ending on the third business day after that day, unless:
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no quotation of the kind referred to above is obtained,
or
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every quotation of that kind obtained is objected to
within five business days after the due date as described above.
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If either of these two events occurs, the Default Quotation Period
will continue until the third business day after the first business day on which prompt notice of a quotation is given as described
above. If that quotation is objected to as described above within five business days after that first business day, however, the
Default Quotation Period will continue as described in the prior sentence and this sentence.
In any event, if the Default Quotation Period and the subsequent
two business day objection period have not ended before the Final Valuation Date, then the Acceleration Amount will equal the principal
amount of the Securities.
Qualified Financial Institutions
For the purpose of determining the Acceleration Amount at any
time, a Qualified Financial Institution must be a financial institution organized under the laws of any jurisdiction in the United
States or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date
of issue and rated either:
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A-2 or higher by Standard & Poor’s Ratings
Services or any successor, or any other comparable rating then used by that rating agency, or
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P-2 or higher by Moody’s Investors Service or
any successor, or any other comparable rating then used by that rating agency.
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Discontinuance of an Underlying; Alteration of Method of Calculation
If the Index Publisher of an Underlying discontinues publication
of such Underlying and the Index Publisher or another entity (including MS & Co.) publishes a successor or substitute index
that the Calculation Agent determines, in its sole discretion, to be comparable to such discontinued Underlying (such index being
referred to herein as a “Successor Index”), then any subsequent Index Closing Value of such Underlying will be determined
by reference to the published value of such Successor Index at the regular weekday close of trading on any date on which the Index
Closing Value is to be determined, and, to the extent the value of the Successor Index differs from the value of the relevant Underlying
at the time of such substitution, proportionate adjustments will be made by the Calculation Agent to the relevant Initial Underlying
Value, Coupon Barrier and Downside Threshold.
Upon any selection by the Calculation Agent of a Successor Index,
the Calculation Agent will cause written notice thereof to be furnished to the Trustee, to us and to the Depositary, as holder
of the Securities, within three business days of such selection. We expect that such notice will be made available to you, as a
beneficial owner of such Securities, in accordance with the standard rules and procedures of the Depositary and its direct and
indirect participants.
If the Index Publisher discontinues publication of an Underlying
prior to, and such discontinuance is continuing on, any day on which an Index Closing Value must be determined and the Calculation
Agent determines, in its sole discretion, that no Successor Index is available at such time, then the Calculation Agent will determine
the Index Closing Value of such Underlying for each such date. The Index Closing Value of such Underlying will be computed by the
Calculation Agent in accordance with the formula for and method of calculating such Underlying last in effect prior to such discontinuance,
using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good
faith estimate of the closing price that would have prevailed but for such suspension or limitation) at the close of the principal
trading session of the Relevant Exchange on each such date of each security most recently constituting such Underlying without
any rebalancing or substitution of such securities following such discontinuance. Notwithstanding these alternative arrangements,
discontinuance of the publication of an Underlying may adversely affect the value of the Securities.
If at any time the method of calculating an Underlying or Successor
Index, or the value thereof, is changed in a material respect, or if such Underlying or Successor Index is in any other way modified
so that such index does not, in the opinion of the Calculation Agent, fairly represent the value of such index had such changes
or modifications not been made, then, from and after such time, the Calculation Agent will, at the close of business in New York
City on each date on which the Index Closing Value is to be determined, make such calculations and adjustments as, in the good
faith judgment of the Calculation Agent, may be necessary in order to arrive at a value of a stock index comparable to such Underlying
or Successor Index, as the case may be, as if such changes or modifications had not been made, and the Calculation Agent will calculate
the Index Closing Value with reference to such Underlying or Successor Index, as adjusted. Accordingly, if the method of calculating
such Underlying or Successor Index is modified so that the value of such index is a fraction of what it would have been if it had
not been modified
(e.g., due to a split in the index), then the Calculation Agent
will adjust such index in order to arrive at a value of such Underlying or Successor Index as if it had not been modified (e.g.,
as if such split had not occurred).
Trustee
The “Trustee” for each offering of notes issued under
our Senior Debt Indenture, including the Securities, will be The Bank of New York Mellon, a New York banking corporation.
Agent
The “agent” is MS & Co.
Calculation Agent and Calculations
The “Calculation Agent” for the Securities will be
MS & Co. As Calculation Agent, MS & Co. will determine, among other things, the Initial Underlying Values, the Index Closing
Values on each Index Business Day during the Quarterly Observation Periods, the Final Underlying Values, whether a Contingent Coupon
is payable with respect to any Quarterly Observation Period and the Payment at Maturity, if any.
All determinations made by the Calculation Agent will be at the
sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes and binding
on you, the Trustee and us.
All calculations with respect to the Contingent Coupon, payment
upon a call, and Payment at Maturity, if any, will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded
upward (e.g., .876545 would be rounded to .87655); all dollar amounts related to determination of the amount of cash payable per
Security, if any, will be rounded to the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545
would be rounded up to .7655); and all dollar amounts paid on the aggregate number of Securities will be rounded to the nearest
cent, with one-half cent rounded upward.
Because the Calculation Agent is our affiliate, the economic
interests of the Calculation Agent and its affiliates may be adverse to your interests, as an owner of the Securities, including
with respect to certain determinations and judgments that the Calculation Agent must make in determining the Final Level or whether
a Market Disruption Event has occurred. See “—Discontinuance of an Underlying; Alteration of Method of Calculation,”
and the definition of Market Disruption Event. MS & Co. is obligated to carry out its duties and functions as Calculation Agent
in good faith and using its reasonable judgment.
Issuer Notice to Registered Security Holders, the Trustee
and the Depositary
In the event that the Maturity Date of the Securities is postponed
due to postponement of the Final Valuation Date, the Issuer shall give notice of such postponement and, once it has been determined,
of the date to which the Maturity Date has been rescheduled (i) to each registered holder of the Securities by mailing notice of
such postponement by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon
the registry books, (ii) to the Trustee by facsimile, confirmed by mailing such notice to the Trustee by first class mail, postage
prepaid, at its New York office and (iii) to The Depository Trust Company (the “Depositary”) by telephone or facsimile
confirmed by mailing such notice to the Depositary by first class mail, postage prepaid. Any notice that is mailed to a registered
holder of the Securities in the manner herein provided shall be conclusively presumed to have been duly given to such registered
holder, whether or not such registered holder receives the notice. The Issuer shall give such notice as promptly as possible, and
in no case later than (i) with respect to notice of postponement of the Maturity Date, the Business Day immediately preceding the
scheduled Maturity Date and (ii) with respect to notice of the date to which the Maturity Date has been rescheduled, the Business
Day immediately following the Final Valuation Date as postponed.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee, on which notice the Trustee may conclusively rely, and to the Depositary, on or prior to
10:30 a.m. (New York City time) on the Business Day preceding each Coupon Payment Date, of the amount of cash, if any, to be delivered
with respect to each Principal Amount of the Securities and (ii) deliver the aggregate cash amount due with respect to the Securities,
if any, to the Trustee for delivery to the Depositary, as holder of the Securities, on or prior to the Coupon Payment Date.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee, on which notice the Trustee may conclusively rely, and to the Depositary, on or prior to
10:30 a.m. (New York City time) on the Business Day preceding the Call Date or the Business Day preceding the Maturity Date, as
applicable, of the amount of cash, if any, to be delivered with respect to each Principal Amount of the Securities, and (ii) deliver
the aggregate cash amount due with respect to the Securities, if any, to the Trustee for delivery to the Depositary, as holder
of the Securities, on or prior to the Call Date or Maturity Date, as applicable.
Additional Information About the Securities
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